The best pension plans are the ones that meet your needs in retirement. How much you put in, costs and performance are important factors.
Quite often friends and clients ask me about the best pension plans and I can understand. Pensions are complicated, even more so since Pension options improved and Pension Freedoms came into play. Successive Governments have tinkered with the pension rules and regulations time and time again. I started in the Financial Services Industry in 1984 and I can say each year the government has made some sort of change. Sometimes for the better or worse, but usually it adds another layer of complication. Terms such as Flexible Access Drawdown, Lifetime allowance, Fixed Protection, Capped and Flexi Access Drawdown are technical terms that generally confuse the public.
In its simplest form a pension is a savings contract with tax breaks written under pension rules.
The best pension?
I’ve been thinking about the answers I have given in the past and to try and provide a straight forward answer is not easy. A pension is not easily tangible as you cannot see it or touch it. There are several distinct types of arrangements available. A simple answer to the question – the best pension plans are the ones that enable you to have the lifestyle in retirement you desire for as long as you and your partner (if you have one) are still alive. There are however several issues you must consider.
Retirement Income
It’s fair to say, if your contributions are small, don’t expect to get a great retirement income. The more you put in the more you should get out, especially if you are investing over a long period of time. For many people, the maximum annual amount you can contribute to a pension and get tax relief should be high enough. This is called the annual allowance and is currently is set at £40,000. Depending on your circumstances the maximum amount could be less if you are a high earner or have a lower level of income.
Personal Circumstances
If you are a high earner then the situation might be more complicated. The annual allowance combined with the fact that there is a lifetime allowance (a maximum amount your pension fund can be valued at) could mean that you might need to consider alternative ways of investing for retirement in addition to pensions. Retirement planning does not need to stick with pensions. You could also use Individual Savings Accounts, Investment Accounts or even Venture Capital Trusts or EIS schemes to bridge the retirement gap.
Pension Costs, Performance and Charges
Where you invest and the cost of investing are also important. There can be a significant difference in the costs associated with setting up and running a personal pension arrangement. We would always recommend that you seek Independent Financial Advice from an appropriately qualified person.
Financial Plans
Many Financial Planners use software to help you develop your own financial plan. The plan could include how much you need to save into pensions between now and retirement as well as the annual rate of return you need to achieve on your pensions to ensure you have the retirement you would like.
We call this service our lifestyle financial planning service. If you would like to find out more please contact us.
This article is in relation to UK defined contribution pension arrangements such as personal pensions, sipps or Money Purchase pensions.
